tend to have very low if any capital gains payouts. this offers tax advantages, but does this charachteristic make them less attractive for IRA/retirement saving?

 

  • Rich 3:57 am on January 31, 2010

    A good retirement portfolio would be -
    not all your eggs in one basket.
    Take an hour to run your risk tolerance
    and time horizon.
    Think about this:
    Most people spend more time planning their family vacation
    than they spend planning their retirement!

  • jbowler 3:58 am on January 31, 2010

    No, because index funds also tend to be no load and low cost.
    In the long run this makes much more difference on your rate of return than what you might save in taxes on capital gains.

    They are excellent investments for an IRA.

  • pax veritas 3:58 am on January 31, 2010

    Non-index for the savvy investor with deep pockets or future earning potential; Index mutual funds for the less savvy and/or time starved investor.

    The only real advantage of index based mutual funds is not loosing out significantly based on the law of averages.

    Risk is spread out twice: firstly, within the chosen basket of companies in the mutual fund, secondly, the basket is pegged to market average performances, the index (1). If the whole market goes belly up, everything else is likely to do so and there is not much else anyone can do a thing about it.

    This is a safe choice requiring less monitoring for the passive and typically less savvy investor. (2)

    Watching the company’s performance once every six months or annually, provided the company has sound operating principals and a competent management in the first instance, would suffice.

    Active traders with sharp acumen may be less inclined to choose index linked mutual funds over high risk and high yield investment opportunities for the obvious reason of higher returns and potential losses, subject to in depth knowledge of the company and the company that is understood to be open to business risks inherent in its particular niche market.

    At the end of the day, the decision tends to fall to the individual’s appetite for risk offset with the promise of potential future gains and having sufficiently deep pockets to risk one’s family nest egg meant for retirement and financial emergencies.

  • Big R 3:58 am on January 31, 2010

    Index funds are great vehicles for a retirement account. Over the long haul they beat almost every managed fund. You don’t even need anything else. They are safe and tax efficient. Index funds rule! Buy ‘em!

  • ckm1956 3:58 am on January 31, 2010

    Index funds should be a core holding in your IRA. More "risky" investments (such as sectors or foreign investments) should be small percentage of your IRA.